The Sydney Morning Herald's Economics Editor

Attention conspiracy theorists: see if you can detect a pattern in this. Tony Abbott wants to review the renewable energy target, so he appoints self-professed climate change ''sceptic'' Dick Warburton, who feels qualified to explain to the scientists where they're going wrong.

Abbott wants to review the financial system, so he appoints a former boss of a big four bank, David Murray, who feels qualified to explain to economists where they're going wrong.

So, which industry sector stands the better chance of getting what it wants from its review?

Can you imagine how many proposals Murray's committee will receive aimed at making the financial system bigger and better - and all in return for just a little more help from taxpayers?

I read that the Australian Bankers Association's submission proposes abolition of interest withholding tax, so as to support offshore fund-raising by local banks and to encourage overseas banks to lend more in Australia. It also calls for the removal of ''tax disincentives'' on bank deposits. All to increase this financial sector's contribution to economic growth and jobs, naturally.

The government's terms of reference say ''the inquiry is charged with examining how the financial system could be positioned to best meet Australia's evolving needs and support Australia's economic growth''. Fine. But if it's to be more than just an industry sales pitch, the inquiry needs rigorously to examine the industry's convenient assumption that the bigger it gets the more it benefits the rest of us.

In a brief submission that deserves more attention than it's likely to get, Professor Ron Bird and Dr Jack Gray, of the Paul Woolley centre at the University of Technology, Sydney, summarise the growing evidence that the developed economies' much expanded financial systems have been a bad investment from the perspective of the wider economy. (Both are former fund managers.)

The growth in America's financial sector has been amazing, with its share of gross domestic product rising from less than

3 per cent in 1950 to about 5 per cent in 1980 and more than 8 per cent in 2006. Its share of total corporate profits grew from 14 per cent in 1980 to almost 40 per cent by 2003.

Salaries in US financial services were similar to other industries until 1980, but are now on average 70 per cent higher than those elsewhere. This remarkable growth is referred to as the ''financialisation'' of the economy. One test of the inquiry's thoroughness will be whether it works out comparable figures for Oz.

The first warning that this growth might be making economies more risky came from Professor Raghuram Rajan, of the University of Chicago, at a central bankers' conference in 2005. They told him not to worry. He has since argued that the financial system's big rewards for risk-taking (with other people's money) result in the economy proceeding from bubble to bubble.

Since the mid-2000s, an increasing amount of analysis has questioned whether the growth of the financial system has worked to the betterment of anybody other than those working in the industry, Bird and Gray say.

One study for the Bank for International Settlements concludes that ''big and fast-growing financial sectors can be very costly for the rest of the economy … drawing essential resources in a way that is detrimental to growth at the aggregate level''. A British minister has said: ''We need more real engineers and fewer financial engineers.''

Other research has found that real (physical) investment is being crowded out by the increasing size and profitability of financial investment. Even our Reserve Bank governor, Glenn Stevens, has questioned ''whether all this growth [in finance] was actually a good idea; maybe finance had become too big (and too risky)''.

The huge advances in information technology could have been expected to result in lower costs for financial services, but unit costs have actually increased over the past 30 years. All the trading on financial markets is supposed to lead to better ''price discovery'' and thus improved efficiency in the allocation of resources, but a study found no evidence of financial market prices becoming more ''informationally efficient''.

Adair Turner, former chairman of Britain's Financial Services Authority, sees ''no clear evidence that the growth in the scale and complexity of the financial system in the rich developed world over the last 20 or 30 years has driven increased growth or stability''.

Bird and Grey conclude that the starting point of the Murray inquiry's analysis should be to assess the financial system's effectiveness and highlight where it is falling short and why.